5 strategies to prevent runaway legal fees when being billed hourly

Casual emails from attorneys at DLA Piper exposed in a recent lawsuit appear to confirm some in-house counsels’ perception that large, seemingly reputable law firms are inflating their clients’ legal bills. In an email exchange with colleagues, DLA Piper attorney Christopher Tomson wrote “[DLA] has random people working full time on random research projects in standard ‘churn that bill, baby!’ mode,” adding “That bill shall know no limits.” This one email succinctly states what many in-house counsel have come to fear: Today the business of practicing law is less about representing the best interest of their clients, and more about maintaining a law firm-centric entitlement culture of ever-growing legal fees to meet revenue targets. In damage control, DLA Piper published a statement calling the email exchange “an inexcusable attempt at humor.” Agreed, not much to laugh about here.

During the past five years corporations have been seeking greater value and cost-effectiveness from their legal departments, and as part of this have taken a much more active role in scrutinizing the fees they pay to outside law firms. Increasingly, companies are moving to alternative fee arrangements, seeking either fixed or flat fees to cover legal work over a period of time. While many report that these arrangements are working well, some types of legal work, including certain types of litigation and other matters, are difficult to forecast costs and do not fit well into these types of arrangements. In many cases companies have no choice but to default back to straight hourly billing.

How can companies protect themselves from the practices alleged in the DLA Piper lawsuit? There is no silver bullet, but some best practices are in order:

Ask for a detailed project plan up front. Too often law firm engagement letters lack specific project detail. Have your firm specify what tasks need to be done, how long these tasks are likely to take and who will be performing these jobs. The more detail the better. Review the project plan beforehand and raise questions on tasks that appear to take too long. An experienced partner or senior associate should have no trouble both laying out the plan and justifying how much time each task should take. Acknowledge that the matter may well face some twists and turns, but be clear that these changes should be measured against a baseline plan.

Reserve the right to accept and reject who will bill on the project. Get all of the resumés of everyone who will be billing on the project. You have the right to know if the associate assigned to work on your case has six years of experience or is recently graduated from law school. Be sure you have the right to reject people who you don’t believe would be the right fit for your project. In years past, most companies looked only at the credentials of the senior partner, trusting that partner to pick the right people from her firm. Today, everyone should be reviewed. Also be wary of new associates added to the project midstream. One should ask whether these people bring specialties or skills to the project, or whether they were added because they finished other projects and now need work.

Create go/no-go project checkpoints. Create a series of go/no-go checkpoints within your project. These should be more granular than the normal breakpoints such as motion to dismiss, discovery and summary judgment. At each checkpoint have the firm report on the work done to date, how the actual compares to the estimated work and the forecast for the hours required to complete the remaining tasks. For fast-moving legal matters this may require in-house counsel to be responsive to participate in these reviews, but, more importantly, it puts the law firm on notice that there is not an open checkbook.

Demand weekly billing and status reports. Demand billing information early and often. Too much can occur between monthly billing cycles. Companies can also monitor this information within a matter management system. In-house counsel need a chance to intervene to make early course corrections. Likewise, review bills closely.

Closely monitor the breadth of discovery and other variable-length projects. Perhaps the worst overbilling sins occur not so much from what is being billed but rather how much. In litigation, for example, one area to monitor is the breadth of discovery. Some law firms seek overly broad preservation, driving up the costs of review. Parties must provide responsive materials, but the breadth of review is an important judgment call that legal departments should not necessarily hand off to outside counsel.

An astute reader will note that these suggestions are not really new, and that companies have been applying the principles to their agreements with other types of service providers for years. However, they have not traditionally been applied to law firms.

I have seen instances of partners and associates clearly churning hours. Yet I have also worked with many outside counsel, including some partners at DLA Piper, who are genuinely concerned about providing the best value for their clients, and are conscientious and fair on their billing practices. These attorneys eschew bill inflation schemes, believing they adulterate the quality of their legal work, and welcome transparency on what and how much they are doing. They are pros. Greater inspection will help you identify the churners from the real professionals.

Key takeaways

While many companies have had great success with fixed-fee and alternative fee arrangements, some types of legal work do not easily fit into these types of arrangement.

Demand a project plan up front and monitor project status against this plan.